Rick Steinberg provides a lucid review of the financial crisis and the role that financial regulators and overseers played in his recent webinar titled “The Great Financial System Meltdown”. If you were fortunate enough to attend, you heard Rick describe how we landed in this difficult financial crisis and what he expects in terms of regulations and outcomes for 2009 and beyond. One point that I found very interesting was that we need to recognize that the “100 year flood” happens every 20-30 years. He pointed to the S&L fiasco, junk bond debacle, dot-com bubble, today’s financial system meltdown and liquidity, credit markets seizure – all of which happened since Bill Buckner couldn’t field a ground ball in the ’86 World Series.

The need for better transparency at the board level and a top-down driven, risk aware culture has never been more apparent. Fortunately, as Gordon Burnes points out in a recent blog entry, the Obama administration is proposing financial services regulation which includes “principles on openness and transparency”. Chief risk officers are now more than ever getting a seat at the board table and executives are demanding visibility into risk exposure and its potential impact on operating performance.

Of course technology plays a critical role in an organization’s ability to implement an effective enterprise management framework that provides transparency and drives accountability. With enterprise risk management dashboards providing decision support at all levels within the organization, risk professionals and executives gain visibility into how their business is operating and a decision support system that can be used to improve operational performance and execution.

Technology can also drive culture. Too often in 2008 we heard of organizations that were made aware of risky portfolios and exposure, but did nothing to heed the warnings. It all begins with senior management, but technology can help promote a risk aware culture through integrated training and certifications that build awareness, creates accountability and pushes policies and processes into daily activities.

One can’t help but wonder what would have been the result had financial institutions involved in the sub-prime crisis been practicing strong risk management and fostering a risk aware corporate culture.

Reported everywhere but summarized on the White House blog, Obama laid out seven core principles for the new financial services regulation he and Congress will be pushing over the next months. Of particular interest to risk managers are his principles on openness and transparency as well as well as his call for the new regulatory system to be comprehensive and free of gaps.

We’ve been advocating for (and provide software for!) greater transparency for risk in the business. What’s important to note here is that to do so in any realistic, pragmatic way will require industry standards for risk reporting. Interestingly, that is the topic of today’s IBM Data Governance Council meeting on risk profile reporting. Industry experts on XBRL and risk reporting will be gathering in New York to discuss how industry can leverage existing models for risk information sharing (e.g. ORX) and the rising XBRL standard. Clearly, the government is going to provide a regulatory incentive for better risk reporting; it will be up to us to shape how that works in the real world.

Also, with regard to the regulatory framework principle, we are starting to see that regulatory agency consolidation may be an option after all. With the SEC weakened and derivative oversight totally lacking, it’s not impossible to consider the CFTC and their skills in derivative oversight as being a much larger solution to the regulatory problem. There’s also the interesting point that Obama’s from Chicago, where CFTC’s located and has great sway over the business and regulatory thinking. Having lived in Chicago for four years working for a CBOT-registered firm, I would not underestimate the influence of this perspective. Especially given the recent failures for the SEC.

Of further note, we can imagine that optional federal charter for insurance companies is dead on arrival. Clearly, Obama was saying no to regulatory arbitrage, something insurance commissioners throughout the US are concerned about.

A recent report from Forrester Research found that 46% of GRC inquiries were aimed at “understanding how to improve their compliance program.” Many asked if compliance should be part of a strategic plan or just a tactical component. If you tuned into the recent OpenPages Webinar with Aviva/Norwich Union’s David Fisher you heard how risk management practices at Aviva are being applied to financial controls to accomplish compliance goals while also improving operational control environments.

If you’d like to learn more about how to manage requirements of specific regulations or standards while understanding broader, strategic compliance programs that are responsible for all regulatory areas, be sure to check out the OpenPages Webinar with Chris McClean, Forrester Analyst, and Julian Parkin, Group Privacy Programme Director at Barclays. Chris and Julian provide a unique perspective on how companies can leverage common assessment processes and technology infrastructure to lower overall costs and take a strategic approach to managing compliance. To register for this Webinar, please visit Webinar Registration.

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